Homoki v. Conversion Servs., Inc.

Citation717 F.3d 388
Decision Date28 May 2013
Docket NumberNo. 11–20371.,11–20371.
PartiesDavid HOMOKI, doing business as Global Check Services, Plaintiff–Appellee Cross–Appellant v. CONVERSION SERVICES, INCORPORATED, Defendant–Appellee Electronic Payment Systems, L.L.C., Defendant–Appellant Cross–Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

OPINION TEXT STARTS HERE

Charles M.R. Vethan, Attorney, Joseph Leo Lanza, Attorney, Vethan Law Firm, Houston, TX, for PlaintiffAppellee Cross–Appellant.

Walter J. Cicack, Seyfarth Shaw, L.L.P., Emma C. Mata, Houston, TX, for DefendantAppellee.

Scotty Peck Krob, Esq., Nathan Lee Krob, Esq., Krob Law Office, L.L.C., Greenwood Village, CO, Jeremy R. Wilson, Esq., Wilson, Trosclair & Lovins, P.L.L.C., Dallas, TX, for DefendantAppellant Cross–Appellee.

Appeals from the United States District Court for the Southern District of Texas.

Before KING and HIGGINSON, Circuit Judges, and FOOTE, District Judge. *

FOOTE, District Judge:

David Homoki d/b/a Global Check Services (GCS) and Electronic Payments Systems (“EPS”) both sell check and debit/credit processing services to merchants. When Conversion Services, Inc. (CSI), a sales agent for GCS, stopped selling GCS's products and started selling for EPS, GCS brought suit against EPS and CSI alleging that EPS tortiously interfered with GCS's contract with EPS and conspired to breach CSI's fiduciary duty to GCS. After a jury trial and special verdict, the district court entered judgment in the amount of $700,000 against EPS and $2.15 million against CSI. On appeal, EPS challenges the sufficiency of the evidence supporting the jury's finding on the interference with contract claim and the trial court's decision to allow the conspiracy to breach fiduciary duty claim to go to the jury. GCS cross-appealed, asserting that the trial court erred in refusing to enter judgment holding EPS jointly and severally liable for the damages caused by CSI's breach of fiduciary duty. We affirm the rulings of the district court.

I. Factual and Procedural Background

This suit involves EPS's attempt to develop a competing version of a GCS product. GCS has sold check and debit/credit processing services to merchants since 1994. EPS sells similar services to merchants. Their dispute centers on GCS's “Accounts Receivable Conversion” (“ARC”) service. David Homoki, the founder of GCS, developed the idea for ARC in 2003 and 2004 and began marketing it in 2005. The ARC service allows customers to pay merchants for big ticket items with a series of post-dated checks that, in certain circumstances, will be guaranteed by GCS. Around 2006, EPS became interested in developing a similar product.

In order to use the ARC service, the customer and merchant must be qualified by GCS. GCS decides whether to qualify a customer based on a wide range of factors, including the price of the item to be purchased, the customer's monthly income, the age of the customer's checking account, the customer's check writing history, and the merchant's history. The customer writes a check for the amount of down-payment on the item. The down-payment check is made payable on the day of the transaction. The customer also writes a number of post-dated checks that add up to the balance of the purchase price of the item. Typically, the item must be completely paid for within ninety days. The checks are run through a device that communicates to the merchant whether the checks will be guaranteed by GCS. If the checks are guaranteed, the merchant will receive the entire purchase price of the item directly from GCS within twenty-four to seventy-two hours.

GCS does not sell their products to merchants directly, rather they use agents who market their product. Conversion Services, Inc. (CSI) was GCS's largest agent. Larry Stuart ran CSI. GCS contended at trial that in 2005 CSI signed a contract with GCS in which CSI agreed to sell GCS's services. The 2005 contract did not require CSI to refrain from selling competitors' products. Because GCS could not produce a copy of the signed 2005 contract, the existence of the contract was disputed. Mr. Homoki testified that in 2008 CSI signed another contract that was substantially similar to the 2005 contract in all respects except that it included an exclusivity provision prohibiting CSI from selling competing products. A signed copy of the 2008 contract was not produced by GCS at trial. Whether CSI ever signed the 2008 contract and whether Mr. Stuart was aware of the exclusivity provision in the contract were contested issues at trial.

The relationship between GCS and CSI was initially profitable for both parties, but it soured quickly. CSI signed up a total of 1,257 merchants to the ARC service—many more than any of GCS's other agents. During 2007 and 2008, however, Mr. Homoki discovered that CSI had been misrepresenting the terms of the ARC service to merchants, over-charging for leased equipment, charging merchants for fees that did not actually exist, and failing to provide on-going support. When Mr. Homoki discovered these problems, he and his employees called 800 of the 1,257 merchants signed up by CSI. Each merchant contacted complained about CSI's misrepresentations, overcharging, and lack of support. Only 52 of the 1,257 merchants signed up by CSI ultimately continued to use the ARC service. GCS ceased working with CSI on July 23, 2009.

Around this time Mr. Homoki also learned that Mr. Stuart was selling the EPS90 service. Since 2006, EPS had been developing EPS90, a service similar to ARC. Mr. Stuart testified that he had been in contact with EPS at least since 2006, when EPS informed him that they were interested in developing a program similar to ARC. EPS knew that CSI worked as a selling agent for GCS and sought to profit from Mr. Stuart's knowledge of how the ARC program was sold. Mr. Stuart testified that in October 2008, as EPS was preparing to bring the EPS90 service to market, he discussed with EPS employees how the service should function and how it should be marketed. Both parties anticipated that Mr. Stuart would work as an agent selling the EPS90 service. Mr. Stuart obtained his first EPS90 contract in November 2008. He testified that in total he moved eight merchants from the ARC program to EPS90. In January 2009, he stopped selling for GCS. CSI was not the only GCS agent that EPS attempted to recruit. Another agent of GCS, Ms. Beranek, testified that EPS tried to persuade her to sell for EPS and to move merchants from GCS to EPS. There was also testimony that someone using CSI's password accessed confidential portions of GCS's computer system from computers owned by EPS and obtained confidential information related to GCS's merchants.

GCS filed suit against CSI asserting breach of contract, breach of fiduciary duty, fraud, negligent misrepresentation, tortious interference with plaintiff's existing contracts, tortious interference with plaintiff's prospective business, injury to business reputation, computer fraud and abuse, and civil conspiracy claims. GCS pled five claims against EPS: tortious interference with contracts between GCS and GCS's agents; tortious inference with contracts between GCS and merchants; civil conspiracy; business disparagement; and computer fraud and abuse. Only the following two claims against EPS were submitted to the jury:

1) interference with the CSI/GCS contract; 2) civil conspiracy to breach CSI's fiduciary duty;

The jury returned the following verdict:

1) CSI breached its contract with GCS, causing GCS to suffer $1.15 million in past lost profits and $1 million in future lost profits;

2) CSI's relationship with GCS was an agent/principal relationship, and CSI breached its fiduciary duty to GCS, resulting in $1.15 million in past lost profits and $1 million in future lost profits;

3) EPS conspired with CSI to breach CSI's fiduciary duty to GCS, proximately causing damage to GCS. The jury was not asked to find, and did not find, the amount of damages caused by the conspiracy;

4) CSI committed fraud against GCS, causing damages in the amount of $1.15 million in past lost profits and $1 million in future lost profits; and

5) EPS intentionally interfered with GCS's existing contract with CSI, causing GCS to suffer $200,000 in past lost profits and $500,000 in future lost profits.

The district court entered judgment in the amount of $2.15 million against CSI and $700,000 against EPS. GCS and EPS lodged timely appeals. CSI has not appealed and has not filed any briefs in this Court.

II. Subject Matter Jurisdiction

While this appeal was pending, the parties attempted to mediate their dispute. After the mediation, two handwritten documents were drafted and numerous emails were exchanged regarding the terms of potential settlement. The parties disputed whether they entered into a valid settlement agreement. EPS moved to stay this appeal pending the outcome of a separate suit to enforce the purported settlement agreement. Recognizing our obligation to ensure that a case or controversy remains in this appeal, in a separate opinion we denied the motion to stay, enjoined the parties from prosecuting the separate suit, and remanded to the district court for the limited purpose of determining whether a valid settlement existed. Homoki v. Conversion Serv., Inc., No. 11–20371, 488 Fed.Appx. 848 (5th Cir.2012) (per curiam) (unpublished). On remand, the district court found that GCS and EPS had not entered into a binding settlement. Neither party appealed the district court's ruling. A live controversy therefore exists, and we have subject matter jurisdiction.

III. Sufficiency of the Evidence

EPS argues that the evidence presented at trial was insufficient to support the jury's findings that EPS interfered with the CSI/GCS contract and that this interference caused $700,000 in lost profits. EPS raised these issues in motions for judgment as a matter of law at the close of GCS's case in chief, at the close of evidence, and after entry of judgment. We review a...

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